Cuba’s Foreign Sector: Data for 2015 are (finally) Available

With an extraordinarily long delay, even by Cuba’s unusually foot-dragging standards, the National Office of Statistics and Information (ONEI) has finally released its complete set of statistics for the year 2015.[1] This comes a bit late to help the analyst interested in the short term. However it does reveal some interesting and unusual; developments in the external sector of the Cuban economy, largely related to changes in oil prices.

The value of merchandise imports fell from $13.1 billion in 2014 to $11.7 billion in 2015. The 10% fall was more than accounted for by a drop in the price of imported oil. This was reflected in the distribution of imports by end-use categories: they fell by 20% for intermediate goods (the largest component), but they rose by 14% for consumer goods and by 42% for capital goods in response to the strong increase in total consumption and investment in 2015.

ONEI reports imports of fuels and lubricants (mostly petroleum and products) with a lag of one year. However, current year imports can be estimated fairly precisely by adding up imports from Venezuela (directly or through the Netherlands Antilles) and imports from Algeria. On that basis fuel imports plunged by an estimated 46% from $5.6 billion in 2014 to $3 billion in 2015, reflecting the decline in oil prices.

Merchandise exports dropped in value from $5.1 billion in 2014 to $3.6 billion in 2015 (a 31% decline) following several years of weak performance. Again, the drop in the price of oil was the major factor, through its effect on Cuban exports of petroleum products. Exports of nickel also dropped in 2015 as world prices fell. In real terms, exports of goods have declined since 2010, owing in part to the anti-export bias of Cuba’s multiple exchange rate system.

Exports of fuels and lubricants are not published by ONEI, but they can be approximated by calculating the residual in ONEI’s table on exports by SITC categories.[2] This proxy suggest that Cuban refined petroleum exports dropped by almost one half in 2015, to about $1.1 billion.[3]

The merchandise trade deficit widened marginally to $7.7 billion in 2015 from 7.9 billion in the previous year.

Exports of services fell for the second consecutive year, from $12.7 billion in 2014 to $11.4 billion on in 2015. This decline occurred in spite of a 10% increase in tourism revenue that reflected a broadly based rise in arrivals, including notably from Canada, Germany, the United States and the “Cuban community abroad” (mainly Cuban–Americans).

Exports of non-tourist services (consisting mostly of the services provided by Cuban doctors and other professionals[4]) dropped from $10.1 billion in 2014 to $8.5 billion, probably because of the lower value of Cuban oil imports from Venezuela, to which it is tied in virtue of Accord between the two countries.

The surplus in the balance on goods and services narrowed from $3.9 billion to $2.3 billion

The latest release by ONEI provides data on current account transfers and net investment income only through 2013. (More on these items below). My best guess is that Cuba’s current account surplus narrowed by roughly $1.7 billion in 2015 to $1.3 billion, the lowest level since the crisis year of 2008.

ONEI has not published data on capital movements since 2001. Using information released by private companies and by public agencies (like PDVSA and the European Union) Luis R. Luis[5] has estimated that direct investment inflows averaged $0.4 billion a year in the period 2010-2014.[6] Combining this with data on development finance and Cuba’s claims and liabilities vis-a-vis financial institutions in the BIS area[7], he estimated capital inflows averaging $0.5 billion annually in that period. Together with a current account surplus averaging $1.9 billion annually this would imply a large and persistent level of negative errors and omissions—possibly signifying a substantial unrecorded outflow of capital. The partial information available suggests that these outflows may have declined in 2015.

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We do not have enough data to gauge the external position in 2016, but it was clearly influenced by certain major developments, including:

The internal recession caused by Venezuela’s 45% cut in oil deliveries, almost certainly reduced imports in real terms. The volume of petroleum exports probably also fell sharply as the Cuba authorities announced that, in order to protect the population from the oil shock, they would cut supplies disproportionately to local refineries, including the Cienfuegos refinery which was reported to have stopped operations.

Sugar and nickel exports benefited from somewhat higher prices.

Exports of services continued to benefit from the strong performance of tourism, but exports of professional services probably continued to fall in tandem with the cuts in Venezuelan oil shipments. Moreover, negotiations with the new administration in Brazil could lead to a reduction in the number of Cuban doctors operating in that country, and there are rumors that Cuba itself is reducing the number of these doctors for fear that some may chose not to return to the Island.

Current account transfers are difficult to forecast. ONEI estimates (available only through 2013) show an alternation of relatively small positive and negative numbers in recent years. If these estimates are assumed to include remittances from abroad (which was ONEI’s practice before 2000 (when detailed data on the composition of transfers was available), then recent estimates imply unexplained transfers abroad in the order $1 to $2 billion a year.[8] Where do these transfers go is a mystery. And it is hard to forecast the unknown.

Recently, investment income payments have also become hard to explain. The reason is that conflicting forces may be at play: Cuba has reached debt rescheduling agreements with Russia, Japan, Mexico and the Paris Club (among others) that will significantly lower its’ total debt payments to these creditors—undoubtedly a major achievement of Cuban diplomacy in the financial area. At the same tie Cuba has committed to service the remaining payments in full, so that required payments may actually increase. But actual debt payments will depend on how much Cuba is able to pay given the consequences of Venezuela’s cutback in oil supplies.

[1] Apparently this delay is not the fault of the hard working statisticians of ONEI, but rather of the “secretismo” of some Ministers. If government officials wish to join the IMF they better stop concealing information and speed up publication!

[2] An alternative proxy for fuel exports can be constructed by adding up Cuban exports reported by ONEI as destined to Venezuela and the Netherlands Antilles (but in realty sold in the world market). The two proxies are highly correlated over time.

.[3] This is one of several examples of how Cuba’s “statistical secretismo” can be bypassed by constructing proxies based on alternative variables. In the end, of course, the “secretistas” can have the last word by suppressing publication of those variables, as had occurred, for example, with data on enterprises subsidies.

[4] Estimates for 2014 suggest that almost two thirds of the Cuban doctors working abroad operate in Venezuela and roughly one fourth in Brazil.

[7] The Bank for International Settlements’ data cover banks in most countries in the world including most off-shore centers. It does not t include Russia, China, North Korea and a few minor off-shores.

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